Department of Finance, Merrion Street, Dublin

The Minister for Finance Brian Lenihan, T.D. today  published Finance Bill 2009 which gives effect to the measures announced in the April 7th Emergency Budget. The Minister said the Bill strikes the difficult balance between the need to show a credible way forward on our structural problems and the need to protect the Irish economy. In this context, he said that a borrowing target of 10¾% of GDP strikes the correct balance.  Lenihan also confirmed the plan to close a potential capital gains tax legal loophole allowing Irish resident companies disposing of shares in other companies to avail of a “participation exemption” where the shares derive their value from exploration or exploitation rights.

The Bill confirms that redundancy payments made in the first four months of the year will not be subject to the higher income levy rates introduced in the April Budget.

The Bill also includes a number of other new measures, including a reduction in the rates of interest applied by Revenue to late payments and underpayments of tax by businesses. These will come down by around 20% to annualised rates of between 8% and 10% from July 1. The Minister says this is to ease pressure on businesses in the current difficult economic climate.

The Minister said he noted that, since the Budget, further discussions have taken place with the motor industry concerning the proposed introduction of a VAT Margin Scheme for second-hand cars. While the Society of the Irish Motor Industry (SIMI) expressed appreciation at the efforts made by the Government to try to assist the industry, they considered, in view especially of the difficult financing situation facing the industry, that on balance it would not be in its overall best interest for the Margin Scheme to be introduced at this time. Consequently, the proposed introduction of the Margin Scheme is not being included in the Finance Bill. Lenihan said, it has, however, been agreed that there will be ongoing dialogue over the coming months with SIMI as to what other measures might be introduced to assist the motor industry, especially in regard to removing the current large stock of second-hand cars held by dealers.

The Bill confirms measures announced on Budget Day including:

• A doubling of the income levy rates to 2%, 4% and 6% and a reduction in the rate thresholds to €74,036 and €174,980, along with a reduction in the exemption threshold to €15,028;

• Limiting of mortgage interest relief to the first 7 years of a qualifying home loan;

• A new scheme of tax relief for capital expenditure incurred by companies on the provision of intangible assets for the purpose of a trade;

• The termination of the property-related capital allowance schemes for private hospitals, registered nursing homes, convalescent homes and mental health centres;

• The abolition of the special 20% tax rate applicable to trading profits from dealing in or developing residential land and restrictions on the relief of trading losses from such land;

• The reduction of Group tax free thresholds for Capital Acquisitions by 20%;

• An increase in the rate of Capital Acquisitions Tax, Capital Gains Tax and Deposit Interest Retention Tax to 25%, all effective from 8 April 2009;

• Increases of 2% in the rates of exit taxes on Special Savings Accounts, Personal Portfolio Life Policies and Personal Portfolio Investment Undertakings;

• The introduction of a new levy of 1% on life insurance policies, this will apply to premiums received on or after 1 August 2009;

• An increase from 2% to 3% in the current levy on non-life insurance policies;

• The introduction of a Stamp Duty Residential Trade-In Scheme provides that an individual or company selling a new house can take an existing, second-hand, house as a trade-in against the purchase of a new house without incurring a Stamp Duty charge.

• Confirmation of the increase in Mineral Oil Tax of 5 cent per litre (including VAT) on auto-diesel with effect from midnight on 7 April 2009;

• Confirmation of the increase in Excise Duty of 25 cent (including VAT) on a packet of 20 cigarettes, with a pro-rata increase on other tobacco products, with effect from midnight on 7 April 2009;

• A reduction of the level at which interest can be claimed against tax for residential rental properties from the existing 100% to 75%.

New measures apart from the capital gains tax provision::

• In relation to the Air Travel Tax (ATT), an amendment, as previously announced on 25 February 2009, is being made to the definition of ‘‘airport’’ used for the air travel tax to exclude from the scope of the tax airports from which fewer than 50,000 (formerly 10,000) persons departed in the previous calendar year;

•  In relation to Vehicle Registration Tax (VRT) unjust enrichment claims, an amendment is being proposed to correct the formula that is used for the calculation of a repayment of VRT;

• An amendment is proposed to the Mid-Shannon Corridor Tourism Infrastructure Investment Scheme which extends the period during which such applications can be made to 31 May 2010 and the period within which expenditure must be incurred for capital allowances is also being extended, to 31 May 2013;

• As a means of alleviating pressure on businesses at a time of considerable economic difficulties, the statutory rate of interest applied by Revenue to delayed payments of taxation and underpayments by taxpayers engaged in business activities will be reduced by some 20% to annualised rate equivalents of 8% and 10% approximately. These new rates are to take effect from 1st July 2009;

• A provision confirming that redundancy payments made in the first four months of the year will only be subject to the income levy rates in force at the time on any taxable portion of those payments;

List of Items

Finance Bill 2009

Explanatory Memorandum

Commenting on the Intellectual Property measures, Joan O’Connor, Tax Partner, Deloitte said: “The measures detailed today will benefit, amongst others, US multinationals which have established or will establish Irish subsidiary companies to acquire intra group intangible assets.

“The measures are attractive in two ways: such Irish subsidiary companies will secure a cash benefit from the tax relief, while the US parent should secure an accounting book benefit under US GAAP on consolidation of the Irish company’s results. Acquisitions of intangible assets from third parties also qualify for the relief.

“This introduction of this relief on Intellectual Property is most timely. Asset values have dropped significantly including intangible asset values and companies are looking at restructuring their operations due to economic pressures. Furthermore, with the US administration’s current focus on structures in use to defer US taxes, Ireland should benefit from having such a relief in place.

“Ultimately, this measure enhances Ireland’s competitiveness as a location for the centralisation, management and development of intellectual property. It is a welcome step on the road to creating a new Smart Economy,” O’Connor concluded.

Pat Wall, Chair of the American Chamber’s Taxation Group said: “This is a very welcome development coming as it does in the same week President Obama announced his proposals to introduce changes to the US tax regime. It sends a strong signal to the multinational community that the Irish government is determined to maintain Ireland’s tax competitiveness. Many other jurisdictions already allow tax write offs against IP development and acquisition and our competitive armory has now substantially strengthened”.

“The fact that companies have the option to amortize their costs based on either a fixed 15 year period, or based on the Irish statutory accounts treatment is also far sighted of Government. It will allow companies to elect the most favourable treatment relevant to their circumstances.”